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Global financial cycle, household credit, and macroprudential policies

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Abstract

We show that macroprudential policies dampen the impact of global financial conditions on local credit cycles. For identification, we exploit exogenous variation in the U.S. VIX and household and business credit registers in a small open economy, where banks depend on foreign funding and macroprudential measures vary over a full boom-bust cycle. When the VIX is low, tighter macroprudential policies (i) reduce household lending, notably for riskier (FX and high DSTI) loans and by banks dependent on foreign funding, (ii) increase local currency lending to real-estate firms, and (iii) dampen house prices and economic activity in areas with higher FX-loans.

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  • Mircea Epure & Irina Mihai & Camelia Minoiu & José-Luis Peydró, 2017. "Global financial cycle, household credit, and macroprudential policies," Economics Working Papers 1590, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2021.
  • Handle: RePEc:upf:upfgen:1590
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    More about this item

    Keywords

    macroprudential policies; global financial cycle; cross-border spillovers; household credit; bank loans;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F0 - International Economics - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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